QLMI QD | Strong proposition in untapped market; Initiate at OW
Initiate with QAR6.40/share TP, 21% upside. QLM, Qatar’s leading medical and life insurer, is well positioned to capitalise on the expected growth momentum as the Nov-21 mandatory health insurance law comes into effect. QLM’s ability to secure sizable contracts, expand into the underpenetrated life segment, and improve its investment utilisation should help enhance margins, operational efficiency, and profitability outlook. The stock trades on a 2022e P/BV of 2.9x, against a RoE of c19%, standing out among global and regional peers.
Early in the growth cycle. Look for a record high growth in QLM’s medical gross written premium (GWP) of c19% y-o-y in 2022e, on substantial revenue inflows from contracts sealed with Qatar Gas and Qatar Energy in 1Q22 and activity ahead of the FIFA WC22. We assume the full application of the mandatory medical coverage to non-Qatari private employees (currently c1.7mn) over four years, starting 2023. This is broadly similar to what took place in Saudi Arabia. We expect QLM to grow its medical GWP at a 2022-24e CAGR of c10%.
Strong market footing. An estimated medical market share of c70%, well-established provider network, and strong customer retention bode well for QLM’s high pricing power, fading the impact of above-average loss and combined ratios (88% and 97% vs. 81% and 92% for regional peers). QLM is a key beneficiary of a high interest rate backdrop, given its investment portfolio composition (c97% in fixed income and cash). We look for an adequate solvency ratio, averaging c200%, well above the statutory requirement, allowing for a high dividend yield.
Promising prospects on the life GWP. We look for more sizable growth for life insurance products (2021-24e GWP CAGR of c15%), on considerably low penetration, sensed structural market shift post-COVID-19, and increased demand for supplemental pension products and retirement plans. Given the life segment is of a higher margin (average loss ratio of c63% vs. c91% for medical), a 5% rise in its GWP contribution (historically at 13%) would add c26% to our valuation.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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